Michael Porter's Monitor Group

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Transcript of Michael Porter's Monitor Group

By Steve Denning; Forbes What Killed the Michael Porter's Monitor Group? The One Force that Really Matters Introduction Monitor Group is a consulting firm, co-founded by Michael PorterAs of November of this year, Monitor Group found itself unable to pay its bills and filed for bankruptcy protection What Went Wrong? The downward spiral has been continuing for yearsIn 2008, consulting work slowed significantly due to the financial crisisIn 2009, the firm had to advance $4.5 million and pass on $20 million in bonusesMonitor then borrowed an additional $51 million from the private equity firm, Caltius Capital Management By September of 2012, Monitor could not pay the rent for its headquartersIn November, the firm missed an interest payment to Caltius, which caused the firm to default and to file bankruptcy A Very Strange Tale The biggest question is: what lead to Monitor's failure?When Michael Porter graduated from Harvard Business School and went on to earn his PhD in economics, he learned that excess profits were common in some industries and companies because of barriers to competition If a firm could position its business so that structural barriers ensured endless above-average profits, it would achieve a sustainable competitive advantage The Aristotle of Business Metaphysics Porter wrote about his findings in the Harvard Business Review and when on to publish a book over the strategyThese writings started a revolution in the strategy fieldIn 1983, Porter co-founded Monitor based on these findings No Basis in Fact or Logic Porter's idea of sustainable competitive advantage lacked fact and logic With the exception of government-regulated sustainable competitive advantage, it simply does not existThere can be no evidence found of creating sustainable competitive advantage in advance by studying the structure of an industryPorter's theory was only useful in retrospect, not in predicting the future The Goal of Strategy is to Avoid Competition? The goal of Porter's strategy was to protect businesses from other business rivals by finding a safe haven for businesses from the destructive forces of competitionThe potential profit of an industry was a fixed and finite amount; the question was which company was going to get which share of itHowever, competition within an industry does not constitute failure of a rival for another company to succeedPorter's theory is incorrect concerning the purpose of strategy; it should be to add value for customers and ultimately societyThe failure to add value to customers is why Monitor Group defaulted Since Porter's strategy ignored adding value to the customer, it was all about earning excess profits without making a better product or delivering better servicePorter's strategy is now seen as antisocial (because it preserves excess profits) and bad for business (because it does not work) Following this strategy does wrong to shareholders and consumers No Competitive Advantage is Sustainable Porter's strategy is greatly affected by the recent shift in the power of the marketplace from the seller to the buyerWhen Porter founded his theory, this was not the caseStructural barriers to competition used to be very widespread; currently they are mostly blown awayThe potential profit for an industry is a highly elastic concept in reality, in contrast to what Porter believed Making Profits without Deserving Them Monitor Had No Place in the Emerging World The consultants of Monitors Group did not understand the concept of innovation, creating new value, or satisfying customers' needsThey were part-time academics who promised to find business solutions just from studying the numbersThey looked for financial solutions to problems that required real-world answers The Strategist CEO & Two Classes of Management Porter's theory viewed the CEO as a superior being CEOs should be the the chief strategist because they lead the organizationThis idea leads to a division in management Top management: takes responsibility for deciding on the mix of businesses a corporation should pursue and for judging the performance of business unit managers AKA strategic managementMiddle management: responsible for the execution of activities within specific lines of businessAKA operational management The Future of Strategy Consulting Strategy consulting has a bright future through continuous innovationTo succeed, consultants need to know something about innovation and about the sectors in which they operate and the customers who populate themWhat has no future is strategy conceived as defeating rivals by finding a sustainable comparative advantage simply through studying the structure of the industry and juggling the numbers Key Findings Ultimately what killed Monitor was the fact that its customers were no longer willing to buy what Monitor was selling Monitor was crushed by the single dominant force in today’s marketplace: the customer The Only Safe Place The only way to be safe from competition and innovation is to join itThe strategy of a company should be to add value to its customers through innovation and find new ways to satisfy customersThis approach tends to be more profitable